Introduction
In every election season, there has always been dominant issues
central to each campaign and party. In recent times, one such issue
concerns that of housing, particularly the cost of HDBs. This is an
issue that’s pertinent to Singaporeans as it forms part of the debate
around the increasing cost of living in Singapore. It is on this basis
that we start our analysis into HDB resale prices and the factors behind
them.
Insight 1: Did you know that housing in Singapore has gotten increasingly unaffordable, only cooling in recent years?
Analysis
Here, we are not merely talking about the nominal price of housing because natural increases are expected. Instead, we are talking about the fact that the cost of resale flats has far outpaced the rate of inflation, making HDBs unnaturally expensive.
The inflation rate is derived from changes in Consumer Price Index (CPI) and is defined as a sustained increase in general price levels. Here, we can see the rate of inflation declining in recent years, but holding mostly positive:
In theory, ceteris paribus, we should expect HDB resale prices to
closely match the theoretical inflation-driven prices. However, that has
not been the case as resale prices far outpaced the theoretical resale
prices, peaking in 2013. Since then, we have seen a decline in nominal
resale prices, only reaching the theoretical inflation-driven price in
the last year.
In 2012, we see the difference between nominal resale prices and
inflation-adjusted prices peaking at $69,000. Although the difference
declined in 2015, it peaked again in 2017 at $49,000. This means
that buyers were paying up to $69,000 more for flats!
In Ang Mio Kio, we see a “M” pattern, with two peaks in the resale price
in 2013 and 2017.
Although it experienced the rise in resale prices in 2012/13 like Ang Mo
Kio, Bukit Batok’s decline in the price of resale flats was sustained,
without a noticeable rise after 2015. In fact, at certain times, the
resale prices dipped below the inflation-adjusted price.
Insight 2: Did you know that the changes in the price of housing were mainly driven by supply and not any other factor?
Analysis
Now that we have seen how prices have change, let’s now analyse the key drivers behind such changes in price. Is it because flats have gotten bigger? Or that more 5-room flats are being sold?
Floor Space
Let’s first look at floor space as a factor. We see here that the average floor space of flats sold declined whilst prices rose in 2013. Conversely, as prices stabilised from 2015 onwards, floor space increased.
We can also see from the following model that there seems to be no
correlation between price and mean floor area, therefore the
changes in resale prices in 2010-2019 were not caused by increased floor
space in flats. Interestingly, flats sold in Bukit Batok tend to be
larger.
Height
Perhaps then the changes in price mainly stem from the increasing height of flats sold? We can clearly see a positive correlation between floor level and the mean resale price:
However, as prices rose in 2012/13, we also see the mean floor height of
flats sold decreasing. On the other hand, as prices stabilized from 2015
onwards, the mean floor height increased. This shows us that floor level
was not a big factor that contributed to the change in prices.
Flat Model
Next, we could analyse if the flat model caused the changes in the resale price. As we can see from the graph below, the rise in prices in 2013 corresponds with a drastic fall in supply of all flat models, suggesting a relationship. This fall in supply can be reflected the most in New Generation flats.
Flat type
Lastly, let’s look at how the different flat types influence resale prices. Here, we can see that different flat types occupy distinctive price groups, with the executive flats commanding the highest prices.
Likewise, with flat models, we see that the rise in resale prices in
2013 corresponds with a fall in supply of all flat types. Thus,
we can say that the changes in the price of resale flats between
2010-2019 were mainly caused by the changes in the supply of all flat
types and models.